In Malaysia, income tax is imposed on the basis of the 1967 Income Tax Act. A separate tax act called the Labuan Business Activity Tax Act was introduced in 1990 for governing tax imposition on Labuan entities involving in business activities. As per the provisions of the act, Labuan entities could opt to pay either a flat RM 20,000 or at the rate of 3 percent tax rate. The Labuan entities were exempted from the tax rate that was applicable under the 1957 Income Tax Act. In Budget 2019, the Labuan Tax Act has been revised as follows:

labuan tax act
  • Any business activity in Labuan will be classified as either trading activity or non-trading activity. The business activities carried out through, from, or in Labuan will not be considered as a statutory offense. Further, activities need neither be conducted in foreign currencies nor by a non-resident Labuan entity or with another entity in Labuan.
  • The power of the ministers to label a business activity conducted by an entity in Labuan as Labuan business activity under Section 2A(2) of the Labuan Tax Act has been maintained. However, there is no need for any approval for carrying out such activities in Malaysian currency and with Malaysian residents.
  • Section 2B, a new section of the Tax Act, stipulates that the Labuan entities that are carrying out business activities should have a specified number of full-time employees. In addition, these entities must have an operating expenditure as recommended by the minister.
  • The Labuan Tax Act’s Section 4 has been amended. This section clarifies in clear terms that all incomes derived from 'IP right' or royalty that are received by Labuan entities as consideration for commercially exploiting the right will be subject to 3.0 percent tax under the provisions of the Income Tax Act instead of under the Labuan Tax Act. The IP right is defined under the Act’s new Section 4(5).
  • Finally, the Tax Act’s Section 7 has been deleted. This means that it is not possible for Labuan entities to any longer choose to pay tax as per the flat rate of RM 20,000. Instead, entities conducting businesses in Labuan will have to pay a tax of 3.0 percent on the chargeable profits that accrue.

For more information as regards the Labuan Tax Act, please visit our website at https://offshore-labuan.com/ or contact us by telephone at +6018-228 9533. You can also email us at consultant@qx-trust.com. Another option that you can exercise is filling out our contact form and sending the same to us. We will give you all the information that you need to maximize your Labuan business entity’s profits.